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[MAS FUNDS LOGO]
PROSPECTUS
May 14, 1997
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Prices and Investment Results:
1-800-522-1525
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MAS Funds (the Fund) is a no-load mutual fund consisting of twenty-
six portfolios, three of which are described in this Prospectus. Each
portfolio in this Prospectus operates as a separate diversified investment
company. The investment objective of each portfolio is described with a
summary of investment policies as referenced below. The Fund also offers
Adviser Class Shares and Investment Class Shares.
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Shares of the Cash Reserves Portfolio are neither insured nor guaranteed by
the U.S. Government. The Portfolio seeks to maintain, but there can be no
assurance that it will be able to maintain, a constant net asset value of
$1.00 per share.
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The Fixed Income Portfolio may invest to a certain extent, in high yield,
high risk securities which are speculative with regard to payment of
interest and return of principal (commonly referred to as junk bonds);
therefore, investments in this portfolio may not be suitable for all
investors. See High Yield Investing in the Glossary of Strategies for
additional information regarding certain risks associated with investment in
such securities.
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PORTFOLIO PAGE REFERENCE
How to Use This Prospectus: 3 Prospectus Glossary:
Strategies 17
Portfolio Summaries:
Investments 21
Cash Reserves 14
General Shareholder
Fixed Income 15
Information: 36
Intermediate Duration 16
Table of Contents: Back Cover
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This Prospectus, which should be retained for future reference, sets forth
concisely information that you should know before you invest. A Statement
of Additional Information containing additional information about the Fund
has been filed with the Securities and Exchange Commission. Such Statement
is dated January 31, 1997 as revised from time to time, and has been
incorporated by reference into this Prospectus. A copy of the Statement may
be obtained, without charge, by writing to the Fund or by calling the
Client Services Group at the telephone number shown above.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MILLER
ANDERSON
& SHERRERD, LLP ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428
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EXPENSE SUMMARY - INSTITUTIONAL CLASS SHARES
The following tables illustrate the various expenses and fees that a shareholder
for that portfolio will incur either directly or indirectly. The expenses and
fees set forth below are based on each portfolio's operations during the fiscal
year ended September 30, 1996, except portfolios whose Total Operating Expenses
have been capped.
Shareholder Transaction Expenses:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses:
(as a percentage of average net assets after fee waivers)
12b-1 Fees None
Investment Total
Advisory Other Operating
Portfolio Fees Expenses Expenses
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Cash Reserves 0.155%* 0.172% 0.327%
Fixed Income 0.375 0.108 0.483
Intermediate Duration 0.244* 0.314 0.558
Where applicable as described in Financial Highlights, the Total Operating
Expense ratios reflected in the table above are higher than the ratio of
expenses actually deducted from portfolio assets because of the effect of
expense offset arrangements. The result of such arrangements is to offset
expense that otherwise would be deducted from portolio assets.
* Until further notice, the Adviser has voluntarily agreed to waive its advisory
fees and reimburse certain expenses to the extent necessary to keep Total
Operating Expenses actually deducted from portfolio assets for the Cash
Reserves and Intermediate Duration Portfolios from exceeding 0.32% and 0.52%,
respectively. Absent fee waivers and reimbursements by the Adviser, Total
Operating Expenses would be .422% and .689%, for the Cash Reserves and
Intermediate Duration Portfolios, respectively.
EXAMPLE
The purpose of this table is to assist in understanding the various expenses
that a shareholder in a portfolio will bear directly or indirectly. The
following example illustrates the expenses that an investor would pay on a
$1,000 investment over various time periods assuming (1) a 5% annual rate of
return, and (2) redemption at the end of each time period. The example should
not be considered a representation of past or future expenses and actual
expenses may be greater or less than those shown.
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MAS Funds - 2 Terms in bold type are defined in the Prospectus Glossary
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Portfolio 1 year 3 year 5 year 10 year
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Cash Reserves $3 $11 $18 $41
Fixed Income 5 16 27 61
Intermediate Duration 6 18 31 70
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HOW TO USE THIS PROSPECTUS
A PROSPECTUS SUMMARY begins on page 4;
FINANCIAL HIGHLIGHTS and a description of YIELD AND TOTAL RETURN begin on page
7;
GENERAL INFORMATION including INVESTMENT LIMITATIONS pertinent to all portfolios
begins on page 10;
SUMMARY PAGES for each portfolio's Objective, Policies and Strategies begin on
page 14;
The PROSPECTUS GLOSSARY which defines specific Allowable Investments, Policies
and Strategies printed in bold type throughout this Prospectus begins on page
17;
GENERAL SHAREHOLDER INFORMATION begins on page 36.
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 3
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PROSPECTUS SUMMARY
Cash Reserves - seeks to realize maximum current income, consistent with
preservation of capital and liquidity, by investing in a diversified portfolio
of money-market instruments, Cash Equivalents and other short-term securities
having expected maturities of thirteen months or less. The portfolio seeks to
maintain, but does not guarantee, a constant net asset value of $1.00 per share.
Fixed Income - seeks to achieve above-average total return over a market cycle
of three to five years, consistent with reasonable risk, by investing primarily
in a diversified portfolio of U.S. Governments, Corporates, Mortgage Securities,
Foreign Bonds and other Fixed-Income Securities and Derivatives. The portfolio's
average weighted maturity will ordinarily exceed five years.
Intermediate Duration - seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of U.S. Governments and
investment-
grade Corporates, Mortgage Securities, Foreign Bonds and other Fixed-
Income Securities and Derivatives. The portfolio will maintain an average
duration of between two and five years.
RISK FACTORS: Prospective investors in the Fund should consider the following
factors as they apply to each Portfolio's allowable investments and policies.
See the Prospectus Glossary for more information on terms printed in bold type:
o Each portfolio may invest in Repurchase Agreements, which entail a
risk of loss should the seller default in its obligation to repurchase
the security which is the subject of the transaction;
o Each portfolio may participate in a Securities Lending program which
entails a risk of loss should a borrower fail financially;
o Fixed-Income Securities that may be acquired by the Portfolios will be
affected by general changes in interest rates resulting in increases
or decreases in the value of the obligations held by a portfolio. The
value of fixed-income securities can be expected to vary inversely to
changes in prevailing interest rates, i.e., as interest rates decline,
market value tends to increase and vice versa;
o Securities purchased on a When-Issued basis may decline or appreciate
in market value prior to their actual delivery to the portfolio;
o Each portfolio (except the Cash Reserves Portfolio) may invest a
portion of its assets in Derivatives including Futures & Options.
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MAS Funds - 4 Terms in bold type are defined in the Prospectus Glossary
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Futures contracts, options and options on futures contracts entail
certain costs and risks, including imperfect correlation between the
value of the securities held by the portfolio and the value of the
particular derivative instrument, and the risk that a portfolio could
not close out a futures or options position when it would be most
advantageous to do so;
o Each portfolio (except the Cash Reserves Portfolio) may invest in
certain instruments such as Forwards, certain types of Futures &
Options, certain types of Mortgage Securities and When-Issued
Securities which require the portfolio to segregate some or all of its
cash or liquid securities to cover its obligations pursuant to such
instruments. As asset segregation reaches certain levels, a portfolio
may lose flexibility in managing its investments properly, responding
to shareholder redemption requests, or meeting other obligations and
may be forced to sell other securities that it wanted to retain or to
realize unintended gains or losses;
o Investments in floating rate securities (Floaters) and inverse
floating rate securities (Inverse Floaters) and mortgage-backed
securities (Mortgage Securities), including principal-only and
interest-only Stripped Mortgage-Backed Securities (SMBS), may be
highly sensitive to interest rate changes, and highly sensitive to the
rate of principal payments (including prepayments on underlying
mortgage assets);
o Investments in securities rated below investment grade, generally
referred to as High Yield, high risk or junk bonds, carry a high
degree of credit risk and are considered speculative by the major
rating agencies; and
o Investments in foreign securities involve certain special
considerations which are not typically associated with investing in
U.S. companies. See Foreign Investing. The portfolios investing in
foreign securities may also engage in foreign currency exchange
transactions. See Forwards, Futures & Options, and Swaps.
THE FUND'S INVESTMENT ADVISER: Miller Anderson & Sherrerd, LLP (the "Adviser" or
"MAS") is a Pennsylvania limited liability partnership founded in 1969, wholly
owned by indirect subsidiaries of the Morgan Stanley Group, Inc. and is located
at One Tower Bridge, West Conshohocken, PA 19428. The Adviser is an Equal
Opportunity/Affirmative Action Employer.
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 5
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The Adviser provides investment counseling services to employee benefit plans,
endowments, foundations and other institutional investors, and as of the date of
this Prospectus had in excess of $41 billion in assets under management.
THE FUND'S DISTRIBUTOR: MAS Fund Distribution, Inc. (the "Distributor") provides
distribution services to the Fund.
ADMINISTRATIVE SERVICES: The Adviser provides the Fund directly, or through
third parties, with fund administration services. Chase Global Funds Services
Company, a subsidiary of The Chase Manhattan Bank, serves as Transfer Agent to
the Fund. See Administrative Services.
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MAS Funds - 6 Terms in bold type are defined in the Prospectus Glossary
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Financial Highlights -- Fiscal Years Ended September 30
Selected per share data and ratios for a share outstanding throughout each
period
The following information should be read in conjunction with the Fund's
financial statements which are included in the Annual Report to Shareholders
incorporated by reference in the Statement of Additional Information. The Fund's
financial statements for the year ended September 30, 1996 have been examined by
Price Waterhouse LLP whose opinion thereon (which was unqualified) is also
incorporated by reference in the Statement of Additional Information.
(Adjusted to reflect at 2.5 for 1 share split as of August 13, 1993 for the
Fixed Income Portfolio)
Financial Highlights -- Fiscal Years Ended September 30
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<TABLE>
<CAPTION>
Net Gains Dividend
Net Asset or Losses Distributions Capital Gain
Value- Net on Securities Total from (net Distributions
Beginning Investment (realized and Investment investment (realized net
of Period Income unrealized) Activities income) capital gains)
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<S> <C> <C> <C> <C> <C> <C>
Cash Reserves Portfolio (Commencement of Operations 8/29/90)##
1996 $1.000 $.052 -- $ .052 ($ .052) --
1995 1.000 .055 -- .055 (.055) --
1994 1.000 .034 -- .034 (.034) --
1993 1.000 .028 -- .028 (.028) --
1992 1.000 .038 -- .038 (.038) --
1991 1.000 .064 -- .064 (.064) --
1990 1.000 .007 -- .007 (.007) --
Fixed Income Portfolio (Commencement of Operations 11/14/84)##
1996 $11.82 $0.78 $ 0.08 $ 0.86 ($ 0.79) ($ 0.06)
1995 10.93 0.80 0.69 1.49 (0.60) --
1994 12.86 0.77 (1.28) (0.51) (0.82) (0.47)
1993 12.67 0.88 0.75 1.63 (0.83) (0.61)
1992 12.20 0.90 0.74 1.64 (1.02) (0.15)
1991 10.94 0.94 1.25 2.19 (0.93) --
1990 11.64 0.92 (0.49) 0.43 (1.03) (0.10)
1989 11.40 0.90 0.11 1.01 (0.76) (0.01)
1988 10.86 0.97 0.43 1.40 (0.86) --
1987 11.95 0.93 (0.61) 0.32 (0.91) (0.50)
(Continued on Following Page)
<CAPTION>
Net Assets Ratio of Ratio of
Net Asset End of Expenses Net Income Portfolio
Other Total Value-End Total Period to Average to Average Turnover
Distributions Distributions of Period Return** (thousands) Net Assets Net Assets Rate
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash Reserves Portfolio (Commencement of Operations 8/29/90)##
1996 -- ($ .052) $1.000 5.35% $ 78,497 0.33%++ 5.19% N/A
1995 -- (.055) 1.000 5.57 44,624 0.33++ 5.45 N/A
1994 -- (.034) 1.000 3.40 37,933 0.32++ 3.70 N/A
1993 -- (.028) 1.000 2.81 10,717 0.32++ 2.78 N/A
1992 -- (.038) 1.000 3.89 12,935 0.32++ 3.95 N/A
1991 -- (.064) 1.000 6.63 24,163 0.32++ 6.57 N/A
1990 -- (.007) 1.000 0.74 23,285 0.48* 8.31* N/A
Fixed Income Portfolio (Commencement of Operations 11/14/84)##
1996 -- ($ 0.85) $11.83 7.63% $1,790,146 0.48% 6.77% 162%
1995 -- (0.60) 11.82 14.19 1,487,409 0.49 7.28 140
1994 ($ 0.13)+ (1.42) 10.93 (4.43) 1,194,957 0.49 6.79 100
1993 -- (1.44) 12.86 14.26 909,738 0.47 7.06 144
1992 -- (1.17) 12.67 14.35 859,712 0.47 7.50 137
1991 -- (0.93) 12.20 21.12 831,547 0.47 8.25 143
1990 -- (1.13) 10.94 3.79 666,736 0.46 8.43 209
1989 -- (0.77) 11.64 9.25 559,995 0.47 8.36 100
1988 -- (0.86) 11.40 13.43 405,385 0.49 8.91 168
1987 -- (1.41) 10.86 2.55 290,824 0.52 8.54 202
(Continued on Following Page)
</TABLE>
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 7
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<TABLE>
<CAPTION>
Net Gains Dividend
Net Asset or Losses Distributions Capital Gain
Value- Net on Securities Total from (net Distributions
Beginning Investment (realized and Investment investment (realized net
of Period Income unrealized) Activities income) capital gains)
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<S> <C> <C> <C> <C> <C> <C>
Intermediate Duration Portfolio (Commencement of Operations 10/3/94)#, ##
1996 $10.68 $0.60 $0.03 $0.63 ($ 0.65) ( ($0.38)
1995 10.00 0.69 0.42 1.11 (0.43) --
<CAPTION>
Net Assets Ratio of Ratio of
Net Asset End of Expenses Net Income Portfolio
Other Total Value-End Total Period to Average to Average Turnover
Distributions Distributions of Period Return** (thousands) Net Assets Net Assets Rate
--------------- ------------- --------- ------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Intermediate Duration Portfolio (Commencement of Operations 10/3/94)#, ##
1996 -- ($ 1.03) $10.28 6.27% $12,017 0.56%++ 6.17% 251%
1995 -- (0.43) 10.68 11.39 19,237 0.52*++ 6.56* 168
</TABLE>
* Annualized
** Total return figures for partial years are not annualized.
+ Represents distributions in excess of realized net gains.
++ For the periods indicated, the Adviser voluntarily agreed to waive its
advisory fees and reimburse certain expenses to the extent necessary, if any,
to keep the total annual operating expenses for the Cash Reserves and
Intermediate Duration Portfolios from exceeding 0.32% and 0.52%, respectively.
Voluntarily waived fees and reimbursed expenses totaled 0.08%, 0.24%, 0.14%,
0.11% and 0.09% for the years ended September 30, 1992, 1993, 1994, 1995 and
1996, respectively, for the Cash Reserves Portfolio; and 0.08%* and 0.13% for
the periods ended September 30, 1995 and 1996 for the Intermediate Duration
Portfolio.
# Formerly Intermediate Duration Fixed Income Portfolio (through December 23,
1994)
## For the years ended September 30, 1995 and 1996, the Ratio of Expenses to
Average Net Assets for the Cash Reserves, Fixed Income and Intermediate Duration
Portfolios exclude the effect of expense offsets. If expense offsets were
included, the Ratio of Expenses to Average Net Assets would be 0.32% and 0.32%,
respectively, for the Cash Reserves Portfolio; 0.48% and 0.48%, respectively,
for the Fixed Income Portfolio; and 0.52% for the Intermediate Duration
Portfolio.
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MAS Funds - 8 Terms in bold type are defined in the Prospectus Glossary
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YIELD AND TOTAL RETURN:
From time to time each portfolio of the Fund advertises its yield and total
return. Both yield and total return figures are based on historical earnings and
are not intended to indicate future performance. The average annual total return
reflects changes in the price of a portfolio's shares and assumes that any
income dividends and/or capital gain distributions made by the portfolio during
the period were reinvested in additional shares of the portfolio. Figures will
be given for one-, five- and ten-year periods ending with the most recent
calendar quarter-end (if applicable), and may be given for other periods as well
(such as from commencement of the portfolio's operations). When considering
average total return figures for periods longer than one year, it is important
to note that a portfolio's annual total return for any one year in the period
might have been greater or less than the average for the entire period.
In addition to average annual total return, a portfolio may also quote an
aggregate total return for various periods representing the cumulative change in
value of an investment in a portfolio for a specific period. Aggregate total
returns may be shown by means of schedules, charts or graphs and may include
subtotals of the various components of total return (e.g., income dividends or
returns for specific types of securities such as industry or country types).
The yield of a portfolio (other than the Cash Reserves Portfolio) is computed by
dividing the net investment income per share (using the average number of shares
entitled to receive dividends) earned during the 30-day period stated in the
advertisement by the closing price per share on the last day of the period. For
the purpose of determining net investment income, the calculation includes as
expenses of the portfolio all recurring fees and any non recurring charges for
the period stated. The yield formula provides for semiannual compounding, which
assumes that net investment income is earned and reinvested at a constant rate
and annualized at the end of a six-month period. Methods used to calculate
advertised yields are standardized for all stock and bond mutual funds. However,
these methods differ from the accounting methods used by the portfolio to
maintain its books and records, therefore the advertised 30-day yield may not
reflect the income paid to your own account or the yield reported in the
portfolio's reports to shareholders. A portfolio may also advertise or quote a
yield which is gross of expenses.
From time to time the Cash Reserves Portfolio may advertise or quote its yield
and effective yield. The yield of the Cash Reserves Portfolio refers to the
income generated by an investment in the portfolio over a stated seven day
period. This income is then annualized. That is, the amount of income generated
by the investment during that week is assumed to be generated
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 9
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each week over a 52-week period and is shown as a percentage of the investment.
The effective yield is calculated similarly, but the income earned over the
seven day period by an investment in the portfolio is assumed to be reinvested
when the return is annualized. The "effective yield" will be higher than the
yield because of the compounding effect of this assumed reinvestment.
The performance of a portfolio may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported in
financial and industry publications, returns of other investment advisers and
mutual funds, and various indices as further described in the Statement of
Additional Information.
The performance of Institutional Class Shares, Investment Class Shares and
Adviser Class Shares differ because of any class specific expenses paid by each
class and the shareholder servicing fees charged to Investment Class Shares and
distribution fees charged to Adviser Class Shares.
The Annual Report to Shareholders of the Fund for the Fund's most recent fiscal
year-end contains additional performance information that includes comparisons
with appropriate indices. The Annual Report is available without charge upon
request by writing to the Fund or calling the Client Services Group at the
telephone number shown on the front cover of this Prospectus.
GENERAL INFORMATION:
The following information relates to each portfolio of the Fund and should be
read in conjunction with the specific information about each portfolio.
Objectives: Each portfolio seeks to achieve its investment objective relative to
the universe of securities in which it is authorized to invest and, accordingly,
the total return or current income achieved by a portfolio may not be as great
as that achieved by another portfolio that can invest in a broader range of
securities. Fixed-Income Portfolios will seek to produce total return by
actively trading portfolio securities. The objective of each portfolio is
fundamental and may only be changed with approval of holders of a majority of
the shares of each portfolio. The achievement of any portfolio's objective
cannot be assured.
Suitability: The Fund's portfolios are designed for long-term investors who can
accept the risks entailed in investing in the stock and bond markets, and are
not meant to provide a vehicle for playing short-term swings in the market. The
Fund's portfolios are designed principally for the investments of tax-exempt
fiduciary investors who are entrusted with the responsibility of investing
assets held for the benefit of others. Since such investors are not
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MAS Funds - 10 Terms in bold type are defined in the Prospectus Glossary
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subject to Federal income taxes, securities transactions for each portfolio will
not be influenced by the different tax treatment of long-term capital gains,
short-term capital gains, and dividend income under the Internal Revenue Code.
Securities Lending: Each portfolio may lend its securities to qualified brokers,
dealers, banks and other financial institutions for the purpose of realizing
additional income. Loans of securities will be collateralized by cash, letters
of credit, or securities issued or guaranteed by the U.S. Government or its
agencies. The collateral will equal at least 100% of the current market value of
the loaned securities. In addition, a portfolio will not loan its portfolio
securities to the extent that greater than one-third of its total assets, at
fair market value, would be committed to loans at that time.
Illiquid Securities/Restricted Securities: Each of the portfolios may invest up
to 15% of its net assets (except the Cash Reserves Portfolio, which may invest
up to 10% of its net assets) in securities that are illiquid by virtue of the
absence of a readily available market, or because of legal or contractual
restrictions on resale. This policy does not limit the acquisition of (i)
restricted securities eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933 or (ii) commercial paper
issued pursuant to Section 4(2) under the Securities Act of 1933, that are
determined to be liquid in accordance with guidelines established by the Fund's
Board of Trustees.
Turnover: The Adviser manages the portfolios generally without regard to
restrictions on portfolio turnover, except those imposed by provisions of the
federal tax laws regarding short-term trading. In general, the portfolios will
not trade for short-term profits, but when circumstances warrant, investments
may be sold without regard to the length of time held.
With respect to the Fixed Income Portfolios, the annual turnover rate will
ordinarily exceed 100% due to changes in portfolio duration, yield curve
strategy or commitments to forward delivery mortgage-backed securities.
The portfolio turnover rates for the Fixed Income and Intermediate Duration
Portfolios are 162% and 251%, respectively.
High rates of portfolio turnover necessarily result in correspondingly heavier
brokerage and portfolio trading costs which are paid by a portfolio. Trading in
Fixed-Income Securities does not generally involve the payment of brokerage
commissions, but does involve indirect transaction costs. In addition to
portfolio trading costs, higher rates of portfolio turnover may result in the
realization of capital gains. To the extent net short-term capital gains are
realized, any distributions resulting from such gains are considered ordinary
income for federal income tax purposes.
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 11
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Cash Equivalents/Temporary Defensive Investing: Although each portfolio intends
to remain substantially fully invested, a small percentage of a portfolio's
assets are generally held in the form of Cash Equivalents in order to meet
redemption requests and otherwise manage the daily affairs of each portfolio. In
addition, any portfolio may, when the Adviser deems that market conditions are
such that a temporary defensive approach is desirable, invest in cash
equivalents or the Fixed-Income Securities listed for that portfolio without
limit. In addition, the Adviser may, for temporary defensive purposes, increase
or decrease the average weighted maturity or duration of any Fixed-Income
portfolio without regard to that portfolio's usual average weighted maturity.
Concentration: Concentration is defined as investment of 25% or more of a
portfolio's total assets in the securities of issuers operating in any one
industry. Except as provided in a portfolio's specific investment policies, or
as detailed in Investment Limitations, a portfolio will not concentrate
investments in any one industry.
Investment Limitations: Each portfolio is subject to certain limitations
designed to reduce its exposure to specific situations. Some of these
limitations are:
(a) with respect to 75% of its assets, a portfolio will not purchase securities
of any issuer if, as a result, more than 5% of the portfolio's total assets
taken at market value would be invested in the securities of any single issuer
except that this restriction does not apply to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities.
(b) with respect to 75% of its assets, a Portfolio will not purchase a security
if, as a result, the portfolio would hold more than 10% of the outstanding
voting securities of any issuer.
(c) a portfolio will not acquire any securities of companies within one
industry, if, as a result of such acquisition, more than 25% of the value of the
portfolio's total assets would be invested in securities of companies within
such industry; provided, however, that (1) there shall be no limitation on the
purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; (2) the Cash Reserves Portfolio may invest
without limitation in certificates of deposit or bankers' acceptances of
domestic banks; (3) utility companies will be divided according to their
services, for example, gas, gas transmission, electric and telephone will each
be considered a separate industry; (4) financial service companies will be
classified according to the end users of their services, for example, automobile
finance, bank finance and diversified finance will each be considered a separate
industry; and (5) asset-backed securities will be classified according to the
underlying assets securing such securities.
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MAS Funds - 12 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
(d) a portfolio will not make loans except (i) by purchasing debt securities in
accordance with its investment objectives and policies, or entering into
Repurchase Agreements, (ii) by lending its portfolio securities and (iii) by
lending portfolio assets to other portfolios of the Fund, so long as such loans
are not inconsistent with the Investment Company Act of 1940, as amended or the
Rules and Regulations, or interpretations or orders of the Securities and
Exchange Commission thereunder;
(e) a portfolio will not borrow money, except (i) as a temporary measure for
extraordinary or emergency purposes or (ii) in connection with reverse
repurchase agreements provided that (i) and (ii) in combination do not exceed
331/3% of the portfolio's total assets (including the amount borrowed) less
liabilities (exclusive of borrowings);
(f) Each portfolio may pledge, mortgage or hypothecate assets in an amount up to
50% of its total assets, provided that each portfolio may also segregate assets
without limit in order to comply with the requirements of Section 18(f) of the
Investment Company Act of 1940, as amended, and applicable interpretations
thereof published from time to time by the Securities and Exchange Commission
and its staff.
(g) a portfolio will not invest its assets in securities of any Investment
Company, except as permitted by the 1940 Act or the rules, regulations,
interpretations or orders of the SEC and its staff thereunder.
Limitations (a), (b), (c), (d) and (e), and certain other limitations described
in the Statement of Additional Information are fundamental and may be changed
only with the approval of the holders of a majority of the shares of each
portfolio. The other investment limitations described here and in the Statement
of Additional Information are not fundamental policies meaning that the Board of
Trustees may change them without shareholder approval. If a percentage
limitation on investment or utilization of assets as set forth above is adhered
to at the time an investment is made, a later change in percentage resulting
from changes in the value or total cost of the portfolio's assets will not be
considered a violation of the restriction, and the sale of securities will not
be required.
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 13
<PAGE>
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Cash Reserves Portfolio
Objective: To realize maximum current income, consistent with the
preservation of capital and liquidity, by investing in money
market instruments and other short-term securities having
expected maturities of thirteen months or less. The
Portfolio's average weighted maturity will not exceed 90 days.
The securities in which the Portfolio will invest may not
yield as high a level of current income as securities of lower
quality or longer maturities which generally have less
liquidity, greater market risk and more price fluctuation. The
Portfolio is designed to provide maximum principal stability
for investors seeking to invest funds for the short term, or,
for investors seeking to combine a long-term investment
program in other portfolios of the Fund with an investment in
money market instruments. The Portfolio seeks to maintain, but
there can be no assurance that it will be able to maintain, a
constant net asset value of $1.00 per share.
Approach: The Adviser selects a diversified portfolio of money market
securities of government and corporate issuers, any of which
may be variable or floating rate, and which have remaining
maturities of thirteen months or less from the date of
purchase. For the purpose of determining remaining maturity on
Floaters, demand features and interest reset dates will be
taken into consideration.
Policies: The Portfolio seeks to maintain, but there can be no assurance
that it will be able to maintain, a constant net asset value
of $1.00 per share.
Quality 100% of Commercial Paper Rated in Top Tier
Specifications:
Maturity and Dollar weighted average maturity less than 90 days
Duration: Individual maturities 13 months or less
Allowable Agencies Corporates Repurchase Agreements
Investments: Asset-Backeds Floaters U.S. Governments
Cash Equivalents Investment Companies Zero Coupons
Comparative Lipper Money Market Index
Index:
Strategy: Money Market Investing
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MAS Funds - 14 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
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Fixed Income Portfolio
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing in a diversified portfolio of U.S. Government
securities, corporate bonds (including bonds rated below
investment grade, commonly referred to as junk bonds), foreign
fixed-income securities and mortgage-backed securities of
domestic issuers and other fixed-income securities. The
Portfolio's average weighted maturity will ordinarily be
greater than five years.
Approach: The Adviser actively manages the maturity and duration
structure of the Portfolio in anticipation of long-term trends
in interest rates and inflation. Investments are diversified
among a wide variety of Fixed-Income Securities in all market
sectors.
Policies: Generally at least 65% invested in Fixed-Income
Securities
May invest greater than 50% in Mortgage Securities
Derivatives may be used to pursue portfolio strategy
Quality 80% Investment Grade Securities
Specifications: Up to 20% High Yield
Maturity and Average weighted maturity generally greater than 5 years
Duration:
Allowable Agencies Foreign Currency Preferred Stock
Investments: Asset-Backeds Forwards Repurchase Agreements
Brady Bonds Futures & Options SMBS
Cash Equivalents High Yield Structured Notes
CMOs Inverse Floaters Swaps
Convertibles Investment Companies U.S. Governments
Corporates Loan Particpations When Issued
Floaters Mortgage Securities Zero Coupons
Foreign Bonds Municipals
Comparative Salomon Broad Investment Grade
Index: Lehman Brothers Aggregate
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
High Yield Investing
Foreign Fixed Income Investing
Foreign Investing
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 15
<PAGE>
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Intermediate Duration Portfolio
Objective: To achieve above-average total return over a market cycle of
three to five years, consistent with reasonable risk, by
investing in a diversified portfolio of U.S. Government
securities and investment grade corporate, foreign and other
investment grade fixed-income securities. The Portfolio will
maintain an average duration of between two and five years.
Approach: The Adviser constructs a portfolio with a duration between two
and five years by actively managing the maturity and duration
structure of the portfolio in anticipation of long-
term trends in interest rates and inflation. Investments are
diversified among a wide variety of investment grade
Fixed-Income Securities in all market sectors.
Policies: Generally at least 65% invested in Fixed-Income
Securities
Derivatives may be used to pursue portfolio strategy
May invest greater than 50% in Mortgage Securities
Quality 100% Investment Grade Securities
Specifications:
Maturity and Average duration between 2 and 5 years
Duration:
Allowable Agencies Foreign Bonds Preferred Stock
Investments: Asset-Backeds Foreign Currency Repurchase Agreements
Brady Bonds Forwards SMBS
Cash Equivalents Futures & Options Structured Notes
CMOs Inverse Floaters Swaps
Convertibles Investment Companies U.S. Governments
Corporates Mortgage Securities When Issued
Floaters Municipals Zero Coupons
Comparative Lehman Brothers Intermediate Government/Corporate
Index: Index
Strategies: Maturity and Duration Management
Value Investing
Mortgage Investing
Foreign Fixed Income Investing
Foreign Investing
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MAS Funds - 16 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
PROSPECTUS GLOSSARY
CHARACTERISTICS AND RISKS OF STRATEGIES
AND INVESTMENTS
STRATEGIES
Foreign Fixed Income Investing: The Adviser invests in Foreign Bonds and other
Fixed-Income Securities denominated in foreign currencies, where, in the opinion
of the Adviser, the combination of current yield and currency value offer
attractive expected returns. When the total return opportunities in a foreign
bond market appear attractive in local currency terms, but where in the
Adviser's judgment unacceptable currency risk exists, currency Futures &
Options, Forwards and Swaps may be used to hedge the currency risk.
Foreign Investing: Investors should recognize that investing in Foreign Bonds
involves certain special considerations which are not typically associated with
investing in domestic securities.
As non-U.S. companies are not generally subject to uniform accounting, auditing
and financial reporting standards and practices comparable to those applicable
to U.S. companies, there may be less publicly available information about
certain foreign securities than about U.S. securities. Foreign Bonds may be less
liquid and more volatile than securities of comparable U.S. companies. There is
generally less government supervision and regulation of brokers and listed
companies than in the U.S. With respect to certain foreign countries, there is
the possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect U.S. investments in
those countries. Additionally, there may be difficulty in obtaining and
enforcing judgments against foreign issuers.
Since Foreign Bonds may be denominated in foreign currencies, and since a
portfolio may temporarily hold uninvested reserves in bank deposits of foreign
currencies prior to reinvestment or conversion to U.S. dollars, a portfolio may
be affected favorably or unfavorably by changes in currency rates and in
exchange control regulations, and may incur costs in connection with conversions
between various currencies.
In addition, it is expected that the expenses for custodial arrangements of a
portfolio's foreign securities will be greater than the expenses for the
custodial arrangements for handling U.S. securities of equal value. Certain
foreign governments levy withholding taxes against dividend and interest income.
Although in some countries a portion of these taxes is recoverable, the non-
recovered portion of foreign withholding taxes will reduce the income a
portfolio receives from the companies comprising the portfolio's investments.
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 17
<PAGE>
High Yield Investing: Involves investing in high yield securities based on the
Adviser's analysis of economic and industry trends and individual security
characteristics. The Adviser conducts credit analysis for each security
considered for investment to evaluate its attractiveness relative to its risk. A
high level of diversification is also maintained to limit credit exposure to
individual issuers.
To the extent a portfolio invests in high yield securities it will be exposed to
a substantial degree of credit risk. Lower-rated bonds are considered
speculative by traditional investment standards. High yield securities may be
issued as a consequence of corporate restructuring or similar events. Also, high
yield securities are often issued by smaller, less credit worthy companies, or
by highly leveraged (indebted) firms, which are generally less able than more
established or less leveraged firms to make scheduled payments of interest and
principal. The risks posed by securities issued under such circumstances are
substantial.
The market for high yield securities is still relatively new. Because of this, a
long-term track record for bond default rates does not exist. In addition, the
secondary market for high yield securities is generally less liquid than that
for investment grade corporate securities. In periods of reduced market
liquidity, high yield bond prices may become more volatile, and both the high
yield market and a portfolio may experience sudden and substantial price
declines. This lower liquidity might have an effect on a portfolio's ability to
value or dispose of such securities. Also, there may be significant disparities
in the prices quoted for high yield securities by various dealers. Under such
conditions, a portfolio may find it difficult to value its securities
accurately. A portfolio may also be forced to sell securities at a significant
loss in order to meet shareholder redemptions. These factors add to the risks
associated with investing in high yield securities.
High yield bonds may also present risks based on payment expectations. For
example, high yield bonds may contain redemption or call provisions. If an
issuer exercises these provisions in a declining interest rate market, a
portfolio would have to replace the security with a lower yielding security,
resulting in a decreased return for investors.
Certain types of high yield bonds are non-income paying securities. For example,
zero coupon bonds pay interest only at maturity and payment-in-
kind bonds pay interest in the form of additional securities. Payment in the
form of additional securities, or interest income recognized through discount
accretion, will, however, be treated as ordinary income which will be
distributed to shareholders even though the portfolio does not receive periodic
cash flow from these investments.
The table below provides a summary of ratings assigned to all U.S. and foreign
debt holdings of the Fixed Income Portfolio, which held more than 5%
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MAS Funds - 18 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
in High Yield securities as of September 30, 1996 (not including money market
instruments). These figures are dollar-weighted averages of month-
end portfolio holdings and do not necessarily indicate the portfolio's current
or future debt holdings.
Fixed Income Portfolio
QUALITY
TSY, AGY, AAA 71.29%
AA 7.83%
A 5.83%
BAA 4.62%
BA 5.66%
B 2.84%
CAA 0.00%
CA OR BELOW 0.00%
Not Available 1.93%
TOTAL 100.00%
Maturity and Duration Management: One of two primary components of the Adviser's
fixed-income investment strategy is maturity and duration management. The
maturity and duration structure of a portfolio investing in Fixed-Income
Securities is actively managed in anticipation of cyclical interest rate
changes. Adjustments are not made in an effort to capture short-
term, day-to-day movements in the market, but instead are implemented in
anticipation of longer term shifts in the levels of interest rates. Adjustments
made to shorten portfolio maturity and duration are made to limit capital losses
during periods when interest rates are expected to rise. Conversely, adjustments
made to lengthen maturity are intended to produce capital appreciation in
periods when interest rates are expected to fall. The foundation for maturity
and duration strategy lies in analysis of the U.S. and global economies,
focusing on levels of real interest rates, monetary and fiscal policy actions,
and cyclical indicators. See Value Investing for a description of the second
primary component of the Adviser's fixed-income strategy.
About Maturity and Duration: Most debt obligations provide interest (coupon)
payments in addition to a final (par) payment at maturity. Some obligations also
have call provisions. Depending on the relative magnitude of these payments and
the nature of the call provisions, the market values of debt obligations may
respond differently to changes in the level and structure of interest rates.
Traditionally, a debt security's term-to-maturity has been used as a proxy for
the sensitivity of the security's price to changes in interest rates (which is
the interest rate risk or volatility of the security). However, term-to-maturity
measures only the time until a debt security provides its final payment, taking
no account of the pattern of the security's payments prior to maturity.
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 19
<PAGE>
Duration is a measure of the expected life of a fixed-income security that was
developed as a more precise alternative to the concept of term-to-maturity.
Duration incorporates a bond's yield, coupon interest payments, final maturity
and call features into one measure. Duration is one of the fundamental tools
used by the Adviser in the selection of fixed-income securities. Duration is a
measure of the expected life of a fixed-income security on a present value
basis. Duration takes the length of the time intervals between the present time
and the time that the interest and principal payments are scheduled or, in the
case of a callable bond, expected to be received, and weights them by the
present values of the cash to be received at each future point in time. For any
fixed-income security with interest payments occurring prior to the payment of
principal, duration is always less than maturity. In general, all other factors
being the same, the lower the stated or coupon rate of interest of a
fixed-income security, the longer the duration of the security; conversely, the
higher the stated or coupon rate of interest of a fixed-income security, the
shorter the duration of the security.
There are some situations where even the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by duration is the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure. In
these and other similar situations, the Adviser will use sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.
Money Market Investing: A money market fund like the Cash Reserves Portfolio
invests in securities which present minimal credit risk and may not yield as
high a level of current income as securities of lower quality or longer
maturities which generally have less liquidity, greater market risk and more
price fluctuation. A money market portfolio is designed to provide maximum
principal stability for investors seeking to invest funds for the short-term,
or, for investors seeking to combine a long-term investment program in other
portfolios of the Fund with an investment in money market instruments. However,
because the Cash Reserves Portfolio invests in the money market obligations of
private financial and non-financial corporations in addition to those of the
U.S. Government or its agencies and instrumentalities, it offers higher credit
risk and yield potential relative to money market funds which invest exclusively
in U.S. Government securities. The Cash Reserves Portfolio seeks to maintain,
but does not guarantee, a constant net asset value of $1.00 per share.
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MAS Funds - 20 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Mortgage Investing: At times it is anticipated that greater than 50% of a
fixed-income portfolio's assets may be invested in mortgage-related securities.
These include mortgage-backed securities, which represent interests in pools of
mortgage loans made by lenders such as commercial banks, savings and loan
associations, mortgage bankers and others. The pools are assembled by various
organizations, including the Government National Mortgage Association (GNMA),
Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage
Association (FNMA), other government agencies, and private issuers. It is
expected that a portfolio's primary emphasis will be on mortgage-backed
securities issued by the various Government-related organizations. However, a
portfolio may invest, without limit, in mortgage-backed securities issued by
private issuers when the Adviser deems that the quality of the investment, the
quality of the issuer, and market conditions warrant such investments.
Securities issued by private issuers will be rated investment grade by Moody's
or Standard & Poor's or be deemed by the Adviser to be of comparable investment
quality.
Value Investing: One of two primary components of the Adviser's fixed-
income strategy is value investing, whereby MAS seeks to identify undervalued
sectors and securities through analysis of credit quality, option
characteristics and liquidity. Quantitative models are used in conjunction with
judgment and experience to evaluate and select securities with embedded put or
call options which are attractive on a risk- and option-adjusted basis.
Successful value investing will permit a portfolio to benefit from the price
appreciation of individual securities during periods when interest rates are
unchanged. See Maturity and Duration Management for a description of the other
key component of MAS's fixed-income investment strategy.
INVESTMENTS
Each Portfolio may invest in the securities defined below in accordance with
their listing of Allowable Investments and any quality or policy constraints.
Agencies: are securities which are not guaranteed by the U.S. Government, but
which are issued, sponsored or guaranteed by a federal agency or federally
sponsored agency such as the Student Loan Marketing Association or any of
several other agencies.
Asset-Backeds: are securities collateralized by shorter term loans such as
automobile loans, home equity loans, computer leases, or credit card
receivables. The payments from the collateral are passed through to the security
holder. The collateral behind asset-backed securities tends to have prepayment
rates that do not vary with interest rates. In addition the short-term nature of
the loans reduces the impact of any change in prepayment level. Due to
amortization, the average life for these securities is also the conventional
proxy for maturity.
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 21
<PAGE>
Possible Risks: Due to the possibility that prepayments (on automobile loans and
other collateral) will alter the cash flow on asset-backed securities, it is not
possible to determine in advance the actual final maturity date or average life.
Faster prepayment will shorten the average life and slower prepayments will
lengthen it. However, it is possible to determine what the range of that
movement could be and to calculate the effect that it will have on the price of
the security. In selecting these securities, the Adviser will look for those
securities that offer a higher yield to compensate for any variation in average
maturity.
Brady Bonds: are debt obligations which are created through the exchange of
existing commercial bank loans to foreign entities for new obligations in
connection with debt restructuring under a plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the Brady Plan). Brady Bonds have
been issued only recently, and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various currencies
(although most are dollar-denominated) and they are actively traded in the
over-the-counter secondary market. For further information on these securities,
see the Statement of Additional Information. Portfolios will only invest in
Brady Bonds consistent with quality specifications.
Cash Equivalents: are short-term fixed-income instruments comprising:
(1) Time deposits, certificates of deposit (including marketable variable rate
certificates of deposit) and bankers' acceptances issued by a commercial bank or
savings and loan association. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate. Certificates of deposit are negotiable short-term obligations
issued by commercial banks or savings and loan associations against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer or storage of goods).
A portfolio may invest in obligations of U.S. banks, foreign branches of U.S.
banks (Eurodollars), and U.S. branches of foreign banks (Yankee dollars). Euro
and Yankee dollar investments will involve some of the same risks of investing
in international securities that are discussed in the Foreign Investing section
of this Prospectus.
Portfolios will not invest in any security issued by a commercial bank unless
(i) the bank has total assets of at least $1 billion, or the equivalent in other
currencies, or, in the case of domestic banks which do not have total assets
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MAS Funds - 22 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
of at least $1 billion, the aggregate investment made in any one such bank is
limited to $100,000 and the principal amount of such investment is insured in
full by the Federal Deposit Insurance Corporation, (ii) in the case of U.S.
banks, it is a member of the Federal Deposit Insurance Corporation, and (iii) in
the case of foreign branches of U.S. banks, the security is deemed by the
Adviser to be of an investment quality comparable with other debt securities
which may be purchased by the portfolio.
(2) Each portfolio (except Cash Reserves) may invest in commercial paper rated
at time of purchase by one or more Nationally Recognized Statistical Rating
Organizations ("NRSRO") in one of their two highest categories, (e.g., A-l or
A-2 by Standard & Poor's or Prime 1 or Prime 2 by Moody's), or, if not rated,
issued by a corporation having an outstanding unsecured debt issue rated
high-grade by a NRSRO (e.g. A or better by Moody's, Standard & Poor's or Fitch).
The Cash Reserves Portfolio invests only in commercial paper rated in the
highest category;
(3) Short-term corporate obligations rated high-grade at the time of purchase by
a NRSRO (e.g. A or better by Moody's, Standard & Poor's or Fitch);
(4) U.S. Government obligations including bills, notes, bonds and other debt
securities issued by the U.S. Treasury. These are direct obligations of the U.S.
Government and differ mainly in interest rates, maturities and dates of issue;
(5) Government Agency securities issued or guaranteed by U.S. Government
sponsored instrumentalities and Federal agencies. These include securities
issued by the Federal Home Loan Banks, Federal Land Bank, Farmers Home
Administration, Farm Credit Banks, Federal Intermediate Credit Bank, Federal
National Mortgage Association, Federal Financing Bank, the Tennessee Valley
Authority, and others;
(6) Repurchase agreements collateralized by securities listed above; and
(7) Investments by the Cash Reserve Portfolio in Cash Equivalents are limited by
the quality, maturity and diversification requirements adopted under Rule 2a-7
of the 1940 Act.
CMOs--Collateralized Mortgage Obligations: are Derivatives which are
collateralized by mortgage pass-through securities. Cash flows from the mortgage
pass-through securities are allocated to various tranches (a "tranche" is
essentially a separate security) in a predetermined, specified order. Each
tranche has a stated maturity - the latest date by which the tranche can be
completely repaid, assuming no prepayments - and has an average life - the
average of the time to receipt of a principal payment
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 23
<PAGE>
weighted by the size of the principal payment. The average life is typically
used as a proxy for maturity because the debt is amortized (repaid a portion at
a time), rather than being paid off entirely at maturity, as would be the case
in a straight debt instrument.
Possible Risks: Due to the possibility that prepayments (on home mortgages and
other collateral) will alter the cash flow on CMOs, it is not possible to
determine in advance the actual final maturity date or average life. Faster
prepayment will shorten the average life and slower prepayments will lengthen
it. However, it is possible to determine what the range of that movement could
be and to calculate the effect that it will have on the price of the security.
In selecting these securities, the Adviser will look for those securities that
offer a higher yield to compensate for any variation in average maturity.
Like bonds in general, mortgage-backed securities will generally decline in
price when interest rates rise. Rising interest rates also tend to discourage
refinancings of home mortgages with the result that the average life of mortgage
securities held by a portfolio may be lengthened. This extension of average life
causes the market price of the securities to decrease further than if their
average lives were fixed. In part to compensate for these risks, mortgages will
generally offer higher yields than comparable bonds. However, when interest
rates fall, mortgages may not enjoy as large a gain in market value due to
prepayment risk because additional mortgage prepayments must be reinvested at
lower interest rates.
Convertibles: are convertible bonds or shares of convertible Preferred Stock
which may be exchanged for a fixed number of shares of common stock at the
purchaser's option.
Corporates--Corporate bonds: are debt instruments issued by private
corporations. Bondholders, as creditors, have a prior legal claim over common
and preferred stockholders of the corporation as to both income and assets for
the principal and interest due to the bondholder. A portfolio will buy
Corporates subject to any quality constraints. If a security held by a portfolio
is down-graded, the portfolio may retain the security if the Adviser deems
retention of the security to be in the best interests of the portfolio.
Derivatives: A financial instrument whose value and performance are based on the
value and performance of another security or financial instrument. The Adviser
will use derivatives only in circumstances where they offer the most economic
means of improving the risk/reward profile of the portfolio. The Adviser will
not use derivatives to increase portfolio risk above the level that could be
achieved in the portfolio using only traditional investment securities. In
addition, the Adviser will not use derivatives to
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MAS Funds - 24 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
acquire exposure to changes in the value of assets or indexes of assets that are
not listed in the applicable Allowable Investments for the portfolio. Any
applicable limitations are described under each investment definition. All of
the portfolios of MAS Funds, except the Cash Reserves Portfolio, may enter into
over-the-counter Derivatives transactions (Swaps, Caps, Floors, Puts, etc., but
excluding CMOs, Forwards, Futures and Options, and SMBS) with counterparties
approved by MAS in accordance with guidelines established by the Board of
Trustees. These guidelines provide for a minimum credit rating for each
counterparty and various credit enhancement techniques (for example,
collateralization of amounts due from counterparties) to limit exposure to
counterparties with ratings below AA. Derivatives include, but are not limited
to, CMOs, Forwards, Futures and Options, SMBS, Structured Investments,
Structured Notes and Swaps. See each individual Portfolio's listing of Allowable
Investments to determine which of these the Portfolio may hold.
Fixed-Income Securities: Commonly include but are not limited to U.S.
Governments, Zero Coupons, Agencies, Corporates, High Yield, Mortgage
Securities, SMBS, CMOs, Asset-Backeds, Convertibles, Brady Bonds, Floaters,
Inverse Floaters, Cash Equivalents, Repurchase Agreements, Preferred Stock, and
Foreign Bonds. See each individual portfolio listing of Allowable Investments to
determine which securities a portfolio may hold. Preferred Stock is contained in
the definition of Fixed-Income Securities since it exhibits characteristics
commonly associated with both equity securities and Fixed Income Securities.
Floaters--Floating and Variable Rate Obligations: are debt obligations with a
floating or variable rate of interest, i.e. the rate of interest varies with
changes in specified market rates or indices, such as the prime rate, or at
specified intervals. Certain floating or variable rate obligations may carry a
demand feature that permits the holder to tender them back to the issuer of the
underlying instrument, or to a third party, at par value prior to maturity. When
the demand feature of certain floating or variable rate obligations represents
an obligation of a foreign entity, the demand feature will be subject to certain
risks discussed under Foreign Investing.
Foreign Bonds: are Fixed-Income Securities denominated in foreign currency and
issued and traded primarily outside of the U.S., including: (1) obligations
issued or guaranteed by foreign national governments, their agencies,
instrumentalities, or political subdivisions; (2) debt securities issued,
guaranteed or sponsored by supranational organizations established or supported
by several national governments, including the World Bank, the European
Community, the Asian Development Bank and others; (3) non-
government foreign corporate debt securities; and (4) foreign Mortgage
Securities and various other mortgage and asset-backed securities.
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 25
<PAGE>
Foreign Currency: Portfolios investing in foreign securities will regularly
transact security purchases and sales in foreign currencies. These portfolios
may hold foreign currency or purchase or sell currencies on a forward basis (see
Forwards).
Forwards--Forward Foreign Currency Exchange Contracts: are Derivatives which are
used to protect against uncertainty in the level of future foreign exchange
rates. A forward foreign currency exchange contract is an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. Such contracts do not eliminate fluctuations caused by
changes in the local currency prices of the securities, but rather, they
establish an exchange rate at a future date. Also, although such contracts can
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time they limit any potential gain that might be realized.
A portfolio may use currency exchange contracts in the normal course of business
to lock in an exchange rate in connection with purchases and sales of securities
denominated in foreign currencies (transaction hedge) or to lock in the U.S.
dollar value of portfolio positions (position hedge). In addition, the
portfolios may cross-hedge currencies by entering into a transaction to purchase
or sell one or more currencies that are expected to decline in value relative to
other currencies to which a portfolio has or expects to have portfolio exposure.
Portfolios may also engage in proxy hedging which is defined as entering into
positions in one currency to hedge investments denominated in another currency,
where the two currencies are economically linked. A portfolio's entry into
forward contracts, as well as any use of cross or proxy hedging techniques will
generally require the portfolio to hold liquid securities or cash equal to the
portfolio's obligations in a segregated account throughout the duration of the
contract.
A portfolio may also combine forward contracts with investments in securities
denominated in other currencies in order to achieve desired credit and currency
exposures. Such combinations are generally referred to as synthetic securities.
For example, in lieu of purchasing a foreign bond, a portfolio may purchase a
U.S. dollar-denominated security and at the same time enter into a forward
contract to exchange U.S. dollars for the contract's underlying currency at a
future date. By matching the amount of U.S. dollars to be exchanged with the
anticipated value of the U.S. dollar-denominated security, a portfolio may be
able to lock in the foreign currency value of the security and adopt a synthetic
investment position reflecting the credit quality of the U.S. dollar-denominated
security.
There is a risk in adopting a transaction hedge or position hedge to the extent
that the value of a security denominated in foreign currency is not exactly
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MAS Funds - 26 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
matched with a portfolio's obligation under the forward contract. On the date of
maturity, a portfolio may be exposed to some risk of loss from fluctuations in
that currency. Although the Adviser will attempt to hold such mismatching to a
minimum, there can be no assurance that the Adviser will be able to do so. For
proxy hedges, cross-hedges or a synthetic position, there is an additional risk
in that these transactions create residual foreign currency exposure. When a
portfolio enters into a forward contract for purposes of creating a position
hedge, transaction hedge, cross hedge or a synthetic security, it will generally
be required to hold liquid securities or cash in a segregated account with a
daily value at least equal to its obligation under the forward contract.
Futures & Options--Futures Contracts, Options on Futures Contracts and
Options: are Derivatives. Futures contracts provide for the sale by one party
and purchase by another party of a specified amount of a specific security, at a
specified future time and price. An option is a legal contract that gives the
holder the right to buy or sell a specified amount of the underlying security or
futures contract at a fixed or determinable price upon the exercise of the
option. A call option conveys the right to buy and a put option conveys the
right to sell a specified quantity of the underlying security.
A portfolio will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts in
combination with its outstanding obligations with respect to options
transactions would exceed 50% of its total assets. It will maintain assets
sufficient to meet its obligations under such contracts in a segregated account
with the custodian bank or will otherwise comply with the SEC's position on
asset coverage.
Possible Risks: The primary risks associated with the use of futures and options
are (i) imperfect correlation between the change in market value of the
securities held by a portfolio and the prices of futures and options relating to
the bonds or futures contracts purchased or sold by a portfolio; and (ii)
possible lack of a liquid secondary market for a futures contract and the
resulting inability to close a futures position which could have an adverse
impact on a portfolio's ability to execute futures and options strategies.
Additional risks associated with options transactions are (i) the risk that an
option will expire worthless; (ii) the risk that the issuer of an
over-the-counter option will be unable to fulfill its obligation to the
portfolio due to bankruptcy or related circumstances; (iii) the risk that
options may exhibit greater short-term price volatility than the underlying
security; and (iv) the risk that a portfolio may be forced to forego
participation in the appreciation of the value of underlying securities, futures
contracts or currency due to the writing of a call option.
High Yield: High yield securities are generally considered to be corporate
bonds, preferred stocks, and convertible securities rated Ba through C by
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 27
<PAGE>
Moody's or BB through D by Standard & Poor's, and unrated securities considered
to be of equivalent quality. Securities rated less than Baa by Moody's or BBB by
Standard & Poor's are classified as non-investment grade securities and are
commonly referred to as junk bonds or high yield, high risk securities. Such
securities carry a high degree of risk and are considered speculative by the
major credit rating agencies. The following are excerpts from the Moody's and
Standard & Poor's definitions for speculative-grade debt obligations:
Moody's: Ba-rated bonds have "speculative elements" so their future
"cannot be considered assured," and protection of principal and interest
is "moderate" and "not well safeguarded during both good and bad times in
the future." B-rated bonds "lack characteristics of a desirable
investment" and the assurance of interest or principal payments "may be
small." Caa-rated bonds are "of poor standing" and "may be in default" or
may have "elements of danger with respect to principal or interest."
Ca-rated bonds represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked
shortcomings. C-rated bonds are the "lowest rated" class of bonds, and
issues so rated can be regarded as having "extremely poor prospects" of
ever attaining any real investment standing.
Standard & Poor's: BB-rated bonds have "less near-term vulnerability to
default" than B- or CCC-rated securities but face "major ongoing
uncertainties . . . which may lead to inadequate capacity" to pay interest
or principal. B-rated bonds have a "greater vulnerability to default than
BB-rated bonds and the ability to pay interest or principal will likely be
impaired by adverse business conditions." CCC-rated bonds have a currently
identifiable "vulnerability to default" and, without favorable business
conditions, will be "unable to repay interest and principal." C The rating
C is reserved for income bonds on which "no interest is being paid." D -
Debt rated D is in "default", and "payment of interest and/or repayment of
principal is in arrears."
While these securities offer high yields, they also normally carry with them a
greater degree of risk than securities with higher ratings. Lower-rated bonds
are considered speculative by traditional investment standards. High yield
securities may be issued as a consequence of corporate restructuring or similar
events. Also, high yield securities are often issued by smaller, less credit
worthy companies, or by highly leveraged (indebted) firms, which are generally
less able than more established or less leveraged firms to make
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MAS Funds - 28 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
scheduled payments of interest and principal. The price movement of these
securities is influenced less by changes in interest rates and more by the
financial and business position of the issuing corporation when compared to
investment grade bonds.
The risks posed by securities issued under such circumstances are substantial.
If a security held by a portfolio is down-graded, the portfolio may retain the
security.
Inverse Floaters--Inverse Floating Rate Obligations: are Fixed-Income
Securities, which have coupon rates that vary inversely at a multiple of a
designated floating rate, such as LIBOR (London Inter-Bank Offered Rate). Any
rise in the reference rate of an inverse floater (as a consequence of an
increase in interest rates) causes a drop in the coupon rate while any drop in
the reference rate of an inverse floater causes an increase in the coupon rate.
Inverse floaters may exhibit substantially greater price volatility than fixed
rate obligations having similar credit quality, redemption provisions and
maturity, and inverse floater CMOs exhibit greater price volatility than the
majority of mortgage pass-through securities or CMOs. In addition, some inverse
floater CMOs exhibit extreme sensitivity to changes in prepayments. As a result,
the yield to maturity of an inverse floater CMO is sensitive not only to changes
in interest rates but also to changes in prepayment rates on the related
underlying mortgage assets.
Investment Companies: The portfolios are permitted to invest in shares of other
open-end or closed-end investment companies. The Investment Company Act of 1940,
as amended, generally prohibits the portfolios from acquiring more than 3% of
the outstanding voting shares of an investment company and limits such
investments to no more than 5% of the portfolio's total assets in any one
investment company and no more than 10% in any combination of investment
companies. The 1940 Act also prohibits the portfolios from acquiring in the
aggregate more than 10% of the outstanding voting shares of any registered
closed-end investment company.
To the extent a portfolio invests a portion of its assets in Investment
Companies, those assets will be subject to the expenses of the investment
company as well as to the expenses of the portfolio itself. The portfolios may
not purchase shares of any affiliated investment company except as permitted by
SEC Rule or Order.
Investment Grade Securities: are those rated by one or more nationally
recognized statistical rating organization (NRSRO) in one of the four highest
rating categories at the time of purchase (e.g. AAA, AA, A or BBB by Standard &
Poor's Corporation (Standard & Poor's) or Fitch Investors Service, Inc., (Fitch)
or Aaa, Aa, A or Baa by Moody's Investors Service, Inc.
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 29
<PAGE>
(Moody's)). Securities rated BBB or Baa represent the lowest of four levels of
investment grade securities and are regarded as borderline between definitely
sound obligations and those in which the speculative element begins to
predominate. Mortgage-backed securities, including mortgage pass-
throughs and collateralized mortgage obligations (CMOs), deemed investment grade
by the Adviser, will either carry a guarantee from an agency of the U.S.
Government or a private issuer of the timely payment of principal and interest
(such guarantees do not extend to the market value of such securities or the net
asset value per share of the portfolio) or, in the case of unrated securities,
be sufficiently seasoned that they are considered by the Adviser to be
investment grade quality. The Adviser may retain securities if their ratings
falls below investment grade if it deems retention of the security to be in the
best interests of the portfolio. Any Portfolio permitted to hold Investment
Grade Securities may hold unrated securities if the Adviser considers the risks
involved in owning that security to be equivalent to the risks involved in
holding an Investment Grade Security.
Loan Participations: are loans or other direct debt instruments which are
interests in amounts owed by a corporate, governmental or other borrower to
another party. They may represent amounts owed to lenders or lending syndicates,
to suppliers of goods or services (trade claims or other receivables), or to
other parties. Direct debt instruments involve the risk of loss in case of
default or insolvency of the borrower. Direct debt instruments may offer less
legal protection to the portfolio in the event of fraud or misrepresentation. In
addition, loan participations involve a risk of insolvency of the lending bank
or other financial intermediary. Direct debt instruments may also include
standby financing commitments that obligate the investing portfolio to supply
additional cash to the borrower on demand.
Mortgage Securities--Mortgage-backed securities represent an ownership interest
in a pool of residential and commercial mortgage loans. Generally, these
securities are designed to provide monthly payments of interest and principal to
the investor. The mortgagee's monthly payments to his/her lending institution
are passed through to investors such as the portfolio. Most issuers or poolers
provide guarantees of payments, regardless of whether the mortgagor actually
makes the payment. The guarantees made by issuers or poolers are supported by
various forms of credit, collateral, guarantees or insurance, including
individual loan, title, pool and hazard insurance purchased by the issuer. The
pools are assembled by various Governmental, Government-related and private
organizations. Portfolios may invest in securities issued or guaranteed by the
Government National Mortgage Association (GNMA), Federal Home Loan Mortgage
Corporation (FHLMC), Federal National Mortgage Association (FNMA), private
issuers and other government agencies. There can be no assurance that the
private insurers can meet
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MAS Funds - 30 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
their obligations under the policies. Mortgage-backed securities issued by
non-agency issuers, whether or not such securities are subject to guarantees,
may entail greater risk. If there is no guarantee provided by the issuer,
mortgage-backed securities purchased by the portfolio will be those which at
time of purchase are rated investment grade by one or more NRSRO, or, if
unrated, are deemed by the Adviser to be of investment grade quality.
There are two methods of trading mortgage-backed securities. A specified pool
transaction is a trade in which the pool number of the security to be delivered
on the settlement date is known at the time the trade is made. This is in
contrast with the typical mortgage security transaction, called a TBA (to be
announced) transaction, in which the type of mortgage securities to be delivered
is specified at the time of trade but the actual pool numbers of the securities
that will be delivered are not known at the time of the trade. The pool numbers
of the pools to be delivered at settlement will be announced shortly before
settlement takes place. The terms of the TBA trade may be made more specific if
desired. Generally, agency pass-through mortgage-
backed securities are traded on a TBA basis.
A mortgage-backed bond is a collateralized debt security issued by a thrift or
financial institution. The bondholder has a first priority perfected security
interest in collateral, usually consisting of agency mortgage pass-through
securities, although other assets, including U.S. Treasuries (including Zero
Coupon Treasury Bonds), agencies, cash equivalent securities, whole loans and
corporate bonds, may qualify. The amount of collateral must be continuously
maintained at levels from 115% to 150% of the principal amount of the bonds
issued, depending on the specific issue structure and collateral type.
Possible Risks: Due to the possibility that prepayments on home mortgages will
alter cash flow on mortgage securities, it is not possible to determine in
advance the actual final maturity date or average life. Like bonds in general,
mortgage-backed securities will generally decline in price when interest rates
rise. Rising interest rates also tend to discourage refinancings of home
mortgages, with the result that the average life of mortgage securities held by
a portfolio may be lengthened. This extension of average life causes the market
price of the securities to decrease further than if their average lives were
fixed. However, when interest rates fall, mortgages may not enjoy as large a
gain in market value due to prepayment risk because additional mortgage
prepayments must be reinvested at lower interest rates. Faster prepayment will
shorten the average life and slower prepayments will lengthen it. However, it is
possible to determine what the range of that movement could be and to calculate
the effect that it will have on the price of the security. In selecting these
securities, the Adviser will look for those securities that offer a higher yield
to compensate for any variation in average maturity.
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 31
<PAGE>
Municipals--Municipal Securities: are debt obligations issued by local, state
and regional governments that provide interest income which is exempt from
federal income taxes. Municipal securities include both municipal bonds (those
securities with maturities of five years or more) and municipal notes (those
with maturities of less than five years). Municipal bonds are issued for a wide
variety of reasons: to construct public facilities, such as airports, highways,
bridges, schools, hospitals, mass transportation, streets, water and sewer
works; to obtain funds for operating expenses; to refund outstanding municipal
obligations; and to loan funds to various public institutions and facilities.
Certain industrial development bonds are also considered municipal bonds if
their interest is exempt from federal income tax. Industrial development bonds
are issued by or on behalf of public authorities to obtain funds for various
privately-operated manufacturing facilities, housing, sports arenas, convention
centers, airports, mass transportation systems and water, gas or sewage works.
Industrial development bonds are ordinarily dependent on the credit quality of a
private user, not the public issuer.
General obligation municipal bonds are secured by the issuer's pledge of full
faith, credit and taxing power. Revenue or special tax bonds are payable from
the revenues derived from a particular facility or, in some cases, from a
special excise or other tax, but not from general tax revenue.
Municipal notes are issued to meet the short-term funding requirements of local,
regional and state governments. Municipal notes include bond anticipation notes,
revenue anticipation notes and tax and revenue anticipation notes. These are
short-term debt obligations issued by state and local governments to aid cash
flows while waiting for taxes or revenue to be collected, at which time the debt
is retired. Other types of municipal notes in which the portfolio may invest are
construction loan notes, short-term discount notes, tax-exempt commercial paper,
demand notes, and similar instruments. Demand notes permit an investor (such as
the portfolio) to demand from the issuer payment of principal plus accrued
interest upon a specified number of days' notice. The portfolios eligible to
purchase municipal bonds may also purchase AMT bonds. AMT bonds are tax-exempt
private activity bonds issued after August 7, 1986, the proceeds of which are
directed, at least in part, to private, for-profit organizations. While the
income from AMT bonds is exempt from regular federal income tax, it is a tax
preference item in the calculation of the alternative minimum tax. The
alternative minimum tax is a special separate tax that applies to a limited
number of taxpayers who have certain adjustments to income or tax preference
items.
Preferred Stock: are non-voting ownership shares in a corporation which pay a
fixed or variable stream of dividends.
Repurchase Agreements: are transactions by which a portfolio purchases a
security and simultaneously commits to resell that security to the seller (a
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MAS Funds - 32 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
bank or securities dealer) at an agreed upon price on an agreed upon date
(usually within seven days of purchase). The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or date of maturity of the purchased security. Such agreements
permit the portfolio to keep all its assets at work while retaining overnight
flexibility in pursuit of investments of a longer term nature. The Adviser will
continually monitor the value of the underlying collateral to ensure that its
value, including accrued interest, always equals or exceeds the repurchase
price.
Pursuant to an order issued by the Securities and Exchange Commission, the
Fund's portfolios may pool their daily uninvested cash balances in order to
invest in repurchase agreements on a joint basis. By entering into repurchase
agreements on a joint basis, it is expected that the portfolios will incur lower
transaction costs and potentially obtain higher rates of interest on such
repurchase agreements. Each portfolio's participation in the income from jointly
purchased repurchase agreements will be based on that portfolio's percentage
share in the total repurchase agreement.
SMBS--Stripped Mortgage-Backed Securities: are Derivatives in the form of
multi-class mortgage securities. SMBS may be issued by agencies or
instrumentalities of the U.S. Government and private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose entities of the
foregoing.
SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions on a pool of mortgage assets. One
type of SMBS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive most of
the interest and the remainder of the principal. In some cases, one class will
receive all of the interest (the interest-only or IO class), while the other
class will receive all of the principal (the principal-only or PO class). The
yield to maturity on IOs and POs is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage assets, and
a rapid rate of principal payments may have a material adverse effect on a
portfolio yield to maturity. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, a portfolio may fail to fully
recoup its initial investment in these securities, even if the security is in
one of the highest rating categories.
Although SMBS are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, these securi-
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 33
<PAGE>
ties were only recently developed. As a result, established trading markets have
not yet developed and, accordingly, certain of these securities may be deemed
illiquid and subject to a portfolio's limitations on investment in illiquid
securities.
Structured Notes: are Derivatives on which the amount of principal repayment and
or interest payments is based upon the movement of one or more factors. These
factors include, but are not limited to, currency exchange rates, interest rates
(such as the prime lending rate and LIBOR) and stock indices such as the S&P 500
Index. In some cases, the impact of the movements of these factors may increase
or decrease through the use of multipliers or deflators. The use of Structured
Notes allows a portfolio to tailor its investments to the specific risks and
returns the Adviser wishes to accept while avoiding or reducing certain other
risks.
Swaps--Swap Contracts: are Derivatives in the form of a contract or other
similar instrument which is an agreement to exchange the return generated by one
instrument for the return generated by another instrument. The payment streams
are calculated by reference to a specified index and agreed upon notional
amount. The term specified index includes, but is not limited to, currencies,
fixed interest rates, prices and total return on interest rate indices,
fixed-income indices, stock indices and commodity indices (as well as amounts
derived from arithmetic operations on these indices). For example, a portfolio
may agree to swap the return generated by a fixed-income index for the return
generated by a second fixed-income index. The currency swaps in which the
portfolios may enter will generally involve an agreement to pay interest streams
in one currency based on a specified index in exchange for receiving interest
streams denominated in another currency. Such swaps may involve initial and
final exchanges that correspond to the agreed upon notional amount.
A portfolio will usually enter into swaps on a net basis, i.e., the two return
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a portfolio receiving or paying, as the case
may be, only the net amount of the two returns. A portfolio's obligations under
a swap agreement will be accrued daily (offset against any amounts owing to the
portfolio) and any accrued but unpaid net amounts owed to a swap counterparty
will be covered by the maintenance of a segregated account consisting of cash or
liquid securities. A portfolio will not enter into any swap agreement unless the
counterparty meets the rating requirements set forth in guidelines established
by the Fund's Board of Trustees.
Possible Risks: Interest rate and total rate of return swaps do not involve the
delivery of securities, other underlying assets, or principal. Accordingly, the
risk of loss with respect to interest rate and total rate of return swaps is
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MAS Funds - 34 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
limited to the net amount of interest payments that a portfolio is contractually
obligated to make. If the other party to an interest rate or total rate of
return swap defaults, a portfolio's risk of loss consists of the net amount of
interest payments that a portfolio is contractually entitled to receive. In
contrast, currency swaps may involve the delivery of the entire principal value
of one designated currency in exchange for the other designated currency.
Therefore, the entire principal value of a currency swap may be subject to the
risk that the other party to the swap will default on its contractual delivery
obligations. If there is a default by the counterparty, a portfolio may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Swaps that include caps, floors, and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of market
values, interest rates, and currency exchange rates, the investment performance
of the portfolios would be less favorable than it would have been if this
investment technique were not used.
U.S. Governments--U.S. Treasury securities: are Fixed-Income Securities which
are backed by the full faith and credit of the U.S. Government as to the payment
of both principal and interest.
When-Issued Securities: are securities purchased at a certain price even though
the securities may not be delivered for up to 90 days. No payment or delivery is
made by a portfolio in a when-issued transaction until the portfolio receives
payment or delivery from the other party to the transaction. Although a
portfolio receives no income from the above described securities prior to
delivery, the market value of such securities is still subject to change. As a
consequence, it is possible that the market price of the securities at the time
of delivery may be higher or lower than the purchase price. A portfolio will
maintain with the custodian a segregated account consisting of cash or liquid
securities in an amount at least equal to these commitments.
Zero Coupons--Zero Coupon Obligations: are Fixed-Income Securities that do not
make regular interest payments. Instead, zero coupon obligations are sold at
substantial discounts from their face value. The difference between a zero
coupon obligation's issue or purchase price and its face value represents the
imputed interest an investor will earn if the obligation is held until maturity.
Zero coupon obligations may offer investors the opportunity
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 35
<PAGE>
to earn higher yields than those available on ordinary interest-paying
obligations of similar credit quality and maturity. However, zero coupon
obligation prices may also exhibit greater price volatility than ordinary
fixed-income securities because of the manner in which their principal and
interest are returned to the investor.
GENERAL SHAREHOLDER INFORMATION
This Prospectus is for use by pension and profit-sharing plan participants in
the Morgan Stanley Stable Value Fund (the "Stable Value Fund") who may invest
according to the Stable Value Fund's specifications.
VALUATION OF SHARES
Fixed Income and Intermediate Duration Portfolios:
Net asset value per share is computed by dividing the total value of the
investments and other assets of the portfolio, less any liabilities, by the
total outstanding shares of the portfolio. The net asset value per share is
determined as of one hour after the close of the bond markets (normally 4:00
p.m. Eastern Time) on each day the portfolio is open for business (See Other
Information-Closed Holidays). Bonds and other Fixed-Income Securities listed on
a foreign exchange are valued at the latest quoted sales price available before
the time when assets are valued. For purposes of net asset value per share, all
assets and liabilities initially expressed in foreign currencies will be
converted into U.S. dollars at the bid price of such currencies against U.S.
dollars.
Net asset value includes interest on bonds and other Fixed-Income Securities
which is accrued daily. Bonds and other Fixed-Income Securities which are traded
over the counter and on an exchange will be valued according to the broadest and
most representative market, and it is expected that for bonds and other
Fixed-Income Securities this ordinarily will be the over-the-
counter market.
However, bonds and other Fixed-Income Securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities. The prices provided by a pricing
service are determined without regard to bid or last sale prices but take into
account institutional size trading in similar groups of securities and any
developments related to specific securities. Bonds and other Fixed-
Income Securities not priced in this manner are valued at the most recent quoted
bid price, or when stock exchange valuations are used, at the latest quoted sale
price on the day of valuation. If there is no such reported sale, the latest
quoted bid price will be used. Securities purchased with remaining
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MAS Funds - 36 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
maturities of 60 days or less are valued at amortized cost when the Board of
Trustees determines that amortized cost reflects fair value. In the event that
amortized cost does not approximate market, market prices as determined above
will be used. Other assets and securities, for which no quotations are readily
available (including restricted securities), will be valued in good faith at
fair value using methods approved by the Board of Trustees.
Cash Reserves Portfolio: The net asset value per share of the Cash Reserves
Portfolio is calculated daily as of 12:00 noon (Eastern Time) on each day that
the portfolio is open for business (See Other Information-Closed Holidays). The
portfolio determines its net asset value per share by subtracting the
portfolio's liabilities (including accrued expenses and dividends payable) from
the total value of the portfolio's investments and other assets and dividing the
result by the total outstanding shares of the portfolio.
For the purpose of calculating the portfolio's net asset value per share,
securities are valued by the amortized cost method of valuation, which does not
take into account unrealized gains or losses. This involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value based on
amortized cost is higher or lower than the price the portfolio would receive if
it sold the instrument.
The use of amortized cost and the maintenance of the portfolio's per share net
asset value at $1.00 is based on its election to operate under the provisions of
Rule 2a-7 under the Investment Company Act of 1940, as amended. As conditions of
operating under Rule 2a-7, the portfolio must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of thirteen months or less and invest only in U.S.
dollar-denominated securities which are determined by the Trustees to present
minimal credit risks and which are of eligible quality as determined under the
rule.
The Trustees have also agreed to establish procedures reasonably designed,
taking into account current market conditions and the portfolio's investment
objective, to stabilize the net asset value per share as computed for the
purposes of sales and redemptions at $1.00. These procedures include periodic
review, as the Trustees deem appropriate and at such intervals as are reasonable
in light of current market conditions, of the relationship between the amortized
cost value per share and a net asset value per share based upon available
indications of market value. In such a review, investments for
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 37
<PAGE>
which market quotations are readily available are valued at the most recent bid
price or quoted yield equivalent for such securities or for securities of
comparable maturity, quality and type as obtained from one or more of the major
market makers for the securities to be valued. Other investments and assets are
valued at fair value, as determined in good faith by the Trustees.
In the event of a deviation of over 1/2 of 1% between a portfolio's net asset
value based upon available market quotations or market equivalents and $1.00 per
share based on amortized cost, the Trustees will promptly consider what action,
if any, should be taken. The Trustees will also take such action as they deem
appropriate to eliminate or to reduce to the extent reasonably practicable any
material dilution or other unfair results which might arise from differences
between the two. Such action may include redeeming shares in kind, selling
instruments prior to maturity to realize capital gains or losses or to shorten
average maturity, withholding dividends, paying distributions from capital or
capital gains, or utilizing a net asset value per share not equal to $1.00 based
upon available market quotations.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES:
Dividends and Capital Gains Distributions: The Fund maintains different dividend
and capital gain distribution policies for each portfolio. These are:
o The Fixed Income and Intermediate Duration Portfolios normally distribute
substantially all of their net investment income to shareholders in the form
of quarterly dividends.
o The Cash Reserves Portfolio declares dividends daily and normally distributes
substantially all of its investment income in the form of monthly dividends.
If any portfolio does not have income available to distribute, as determined in
compliance with the appropriate tax laws, no distribution will be made.
If any net capital gains are realized from the sale of underlying securities,
the portfolios normally distribute such gains with the last dividend for the
calendar year.
All dividends and capital gains distributions are automatically paid in
additional shares of the portfolio unless the shareholder elects otherwise. Such
election must be made in writing to the Fund and may be made on the Account
Registration Form.
In all portfolios except the Cash Reserves Portfolio, undistributed net
investment income is included in the portfolio's net assets for the purpose of
calculating net asset value per share. Therefore, on the ex-dividend date, the
net
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MAS Funds - 38 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
asset value per share excludes the dividend (i.e., is reduced by the per share
amount of the dividend). Dividends paid shortly after the purchase of shares by
an investor, although in effect a return of capital, are taxable as ordinary
income.
Certain Mortgage Securities may provide for periodic or unscheduled payments of
principal and interest as the mortgages underlying the securities are paid or
prepaid. However, such principal payments (not otherwise characterized as
ordinary discount income or bond premium expense) will not normally be
considered as income to the portfolio and therefore will not be distributed as
dividends. Rather, these payments on mortgage-backed securities will be
reinvested on behalf of the shareholders by the portfolio in accordance with its
investment objectives and policies.
Special Considerations for the Cash Reserves Portfolio: Net investment income is
computed and dividends declared as of 12:00 noon (Eastern Time), on each day.
Such dividends are payable to Cash Reserves Portfolio shareholders of record as
of 12:00 noon (Eastern Time) on that day, if the portfolio is open for business.
Shareholders who redeem prior to 12:00 noon (Eastern Time) are not entitled to
dividends for that day. Dividends declared for Saturdays, Sundays and holidays
are payable to shareholders of record as of 12:00 noon (Eastern Time) on the
preceding business day on which the portfolio was open for business.
Net realized short-term capital gains, if any, of the Cash Reserves Portfolio
will be distributed whenever the Trustees determine that such distributions
would be in the best interest of shareholders, but at least once a year. The
portfolio does not expect to realize any long-term capital gains. Should any
such gains be realized, they will be distributed annually.
Federal Taxes: The following summary of Federal income tax consequences is based
on current tax laws and regulations, which may be changed by legislative,
judicial or administrative action. No attempt has been made to present a
detailed explanation of the federal income tax treatment of the portfolio or its
shareholders. In addition, state and local tax consequences of an investment in
the portfolio may differ from the Federal income tax consequences described
below. Accordingly, shareholders are urged to consult their tax advisers
regarding specific questions as to federal, state and local taxes.
Each portfolio of the Fund intends to qualify for taxation as a regulated
investment company under the Internal Revenue Code of 1986 (the "Code") so that
each portfolio will not be subject to Federal income tax to the extent it
distributes investment company taxable income and net capital gain (the excess
of net long-term capital gain over net short-term capital loss) to shareholders.
Each Portfolio is treated as a separate entity for Federal income tax purposes
and is not combined with any of the Funds' other portfolios.
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 39
<PAGE>
Each portfolio intends to declare and pay dividends and capital gain
distributions so as to avoid imposition of the Federal excise tax. To do so,
each portfolio expects to distribute an amount at least equal to (i) 98% of its
calendar year ordinary income, (ii) 98% of its capital gains net income (the
excess of short and long-term capital gain over short and long-term capital
loss) for the one-year period ending October 31st, and (iii) 100% of any
undistributed ordinary and capital gain net income from the prior year.
Dividends declared in October, November or December by a portfolio will be
deemed to have been paid by such portfolio and received by shareholders on
December 31st of the declared year provided that the dividends are paid before
February 1 of the following year.
The Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gains distributions, and redemptions) paid
to shareholders who have not complied with IRS regulations. In order to avoid
this withholding requirement, you must certify on the Account Registration Form
that your Social Security or Taxpayer Identification Number provided is correct
and that you are not currently subject to back-up withholding, or that you are
exempt from back-up withholding.
Foreign Income Taxes: Investment income received by the portfolios from sources
within foreign countries may be subject to foreign income taxes withheld at the
source. The U.S. has entered into Tax Treaties with many foreign countries which
entitle these portfolios to a reduced rate of tax or exemption from tax on such
income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of the portfolios' assets to be invested within various
countries is not known. The portfolios intend to operate so as to qualify for
treaty reduced rates of tax where applicable. The Portfolios will not be able to
elect to treat shareholders as having paid their proportionate share of such
taxes for foreign tax credit purposes.
State and Local Taxes: The Fund is formed as a Pennsylvania Business Trust and
therefore is not liable, under current law, for any corporate income or
franchise tax of the Commonwealth of Pennsylvania. The Fund will provide
Pennsylvania taxable values on a per share basis upon request.
TRUSTEES OF THE TRUST: The affairs of the Trust are supervised by the Trustees
under the laws governing business trusts in the Commonwealth of Pennsylvania.
The Trustees have approved contracts under which, as described above, certain
companies provide essential management, administrative and shareholder services
to the Trust.
INVESTMENT ADVISER: The Investment Adviser to the Fund, Miller Anderson &
Sherrerd, LLP (the Adviser), is a Pennsylvania limited liability partnership
founded in 1969, wholly owned by indirect subsidiaries of the
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MAS Funds - 40 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Morgan Stanley Group, Inc., and is located at One Tower Bridge, West
Conshohocken, PA 19428. Miller Anderson & Sherrerd, LLP is an Equal
Opportunity/Affirmative Action Employer. The Adviser provides investment
services to employee benefit plans, endowment funds, foundations and other
institutional investors and as of the date of this prospectus had in excess of
$41 billion in assets under management.
On February 5, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover & Co.
announced that they had entered into an Agreement and Plan of Merger to form
Morgan Stanley, Dean Witter, Discover & Co. Dean Witter, Discover & Co. is a
financial services company with three major businesses: full service brokerage,
credit services and asset management. Morgan Stanley is the indirect parent of
Miller Anderson & Sherrerd, LLP, the Fund's investment adviser.
Subject to certain conditions being met, it is currently anticipated that the
transaction will close in mid-1997. Thereafter, Miller Anderson & Sherrerd, LLP
will be a subsidiary of Morgan Stanley, Dean Witter, Discover & Co.
Under the Agreement with the Fund, the Adviser, subject to the control and
supervision of the Fund's Board of Trustees and in conformance with the stated
investment objectives and policies of each portfolio of the Fund, manages the
investment and reinvestment of the assets of each portfolio of the Fund. In this
regard, it is the responsibility of the Adviser to make investment decisions for
the Fund's portfolios and to place each portfolio's purchase and sales orders.
As compensation for the services rendered by the Adviser under the Agreement,
each portfolio pays the Adviser an advisory fee calculated by applying a
quarterly rate, based on the following annual percentage rates, to the
portfolio's average daily net assets for the quarter:
Rate
------
Cash Reserves Portfolio .250%
Fixed Income Portfolio .375%
Intermediate Duration Portfolio .375%
Until further notice, the Adviser has voluntarily agreed to waive its advisory
fees and reimburse certain expenses to the extent necessary to keep Total
Operating Expenses actually deducted from portfolio assets for the Cash Reserves
and Intermediate Duration Portfolios from exceeding 0.32% and 0.52%,
respectively.
For the fiscal year ended September 30, 1996, the Adviser received the following
as compensation for its services:
Rate
------
Cash Reserves Portfolio .155%
Fixed Income Portfolio .375%
Intermediate Duration Portfolio .244%
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 41
<PAGE>
PORTFOLIO MANAGEMENT
The investment professionals who are primarily responsible for the day-to-
day management of the Fund's portfolios are as follows:
Fixed Income Portfolio: Thomas L. Bennett, Kenneth B. Dunn and Richard B.
Worley;
Cash Reserves Portfolio: Abigail Jones Feder and Ellen D. Harvey;
Intermediate Duration Portfolio: Ellen D. Harvey, Scott F. Richard and Christian
G. Roth.
A description of their business experience during the past five years is as
follows:
Thomas L. Bennett, Managing Director, Morgan Stanley, joined MAS in 1984. He
assumed responsibility for the Fixed Income Portfolio in 1984, the Domestic
Fixed Income Portfolio 1987, the High Yield Portfolio in 1985, the Fixed Income
Portfolio II in 1990, the Special Purpose Fixed Income and Balanced Portfolios
in 1992 and the Multi-Asset-Class Portfolio in 1994.
Kenneth B. Dunn, Managing Director, Morgan Stanley, joined MAS in 1987. He
assumed responsibility for the Fixed Income and the Domestic Fixed Income
Portfolios in 1987, the Fixed Income II Portfolio in 1990, the Mortgage-Backed
Securities and Special Purpose Fixed Income Portfolios in 1992, and the
Municipal and PA Municipal Portfolios in 1994.
Abigail Jones Feder, Principal, Morgan Stanley, joined Morgan Stanley in 1985.
She assumed responsibility for the Cash Reserves Portfolio in 1996.
Ellen D. Harvey, Principal, Morgan Stanley, joined MAS in 1984. She assumed
responsibility for the Cash Reserves Portfolio in 1990, the Limited Duration
Portfolio in 1992 and the Intermediate Duration Portfolio in 1994.
Scott F. Richard, Managing Director, Morgan Stanley, joined MAS in 1992. He
served as Vice President, Head of Fixed Income Research & Model Development for
Goldman, Sachs & Co. from 1987 to 1991 and as Head of Mortgage Research in 1992.
He assumed responsibility for the Mortgage-Backed Securities Portfolio in 1992,
the Limited Duration, Intermediate Duration, Municipal and PA Municipal
Portfolios in 1994 and the Advisory Mortgage Portfolio in 1995.
Christian G. Roth, Principal, Morgan Stanley, joined MAS in 1991. He assumed
responsibility for the Limited Duration and Intermediate Duration Portfolios in
1994.
Richard B. Worley, Managing Director, Morgan Stanley, joined MAS in 1978. He
assumed responsibility for the Fixed Income Portfolio in 1984, the
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MAS Funds - 42 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Domestic Fixed Income Portfolio in 1987, the Fixed Income Portfolio II in 1990,
the Balanced and Special Purpose Fixed Income Portfolios in 1992, the Global
Fixed Income and International Fixed Income Portfolios in 1993 and the
Multi-Asset-Class Portfolio in 1994.
ADMINISTRATIVE SERVICES: MAS serves as Administrator to the Fund pursuant to an
Administration Agreement dated as of November 18, 1993. Under its Administration
Agreement with the Fund, MAS receives an annual fee, accrued daily and payable
monthly, of 0.08% of the Fund's average daily net assets, and is responsible for
all fees payable under any sub-administration agreements. Chase Global Funds
Services Company, a subsidiary of The Chase Manhattan Bank, 73 Tremont Street,
Boston MA 02108-3913, serves as Transfer Agent to the Fund pursuant to an
agreement also dated as of November 18, 1993, and provides fund accounting and
other services pursuant to a sub-administration agreement with MAS as
Administrator.
GENERAL DISTRIBUTION AGENT: Shares of the Fund are distributed exclusively
through MAS Fund Distribution, Inc., a wholly-owned subsidiary of the Adviser.
PORTFOLIO TRANSACTIONS: The investment advisory agreement authorizes the Adviser
to select the brokers or dealers that will execute the purchases and sales of
investment securities for each of the Fund's portfolios and directs the Adviser
to use its best efforts to obtain the best execution with respect to all
transactions for the portfolios. In doing so, a portfolio may pay higher
commission rates than the lowest available when the Adviser believes it is
reasonable to do so in light of the value of the research, statistical, and
pricing services provided by the broker effecting the transaction.
It is not the Fund's practice to allocate brokerage or principal business on the
basis of sales of shares which may be made through intermediary brokers or
dealers. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Fund's Portfolios or who act as agents in the
purchase of shares of the portfolios for their clients.
Some securities considered for investment by each of the Fund's portfolios may
also be appropriate for other clients served by the Adviser. If purchase or sale
of securities consistent with the investment policies of a portfolio and one or
more of these other clients served by the Adviser is considered at or about the
same time, transactions in such securities will be allocated among the portfolio
and clients in a manner deemed fair and reasonable by the Adviser. Although
there is no specified formula for allocating such transactions, the various
allocation methods used by the Adviser, and the results of such allocations, are
subject to periodic review by the Fund's Trustees. MAS
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 43
<PAGE>
may use its broker dealer affiliates, including Morgan Stanley & Co., a wholly
owned subsidiary of Morgan Stanley Group Inc., the parent of MAS's general
partner and limited partner, to carry out the Fund's transactions, provided the
Fund receives brokerage services and commission rates comparable to those of
other broker dealers.
OTHER INFORMATION: Description of Shares and Voting Rights: The Fund was
established under Pennsylvania law by a Declaration of Trust dated February 15,
1984, as amended and restated as of November 18, 1993. The Fund is authorized to
issue an unlimited number of shares of beneficial interest, without par value,
from an unlimited number of series (portfolios) of shares. Currently the Fund
consists of twenty-six portfolios.
The shares of each portfolio of the Fund are fully paid and non-assessable, and
have no preference as to conversion, exchange, dividends, retirement or other
features. The shares of each portfolio of the Fund have no preemptive rights.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Trustees can
elect 100% of the Trustees if they choose to do so. Shareholders are entitled to
one vote for each full share held (and a fractional vote for each fractional
share held), then standing in their name on the books of the Fund.
Meetings of shareholders will not be held except as required by the Investment
Company Act of 1940, as amended, and other applicable law. A meeting will be
held to vote on the removal of a Trustee or Trustees of the Fund if requested in
writing by the holders of not less than 10% of the outstanding shares of the
Fund. The Fund will assist in shareholder communication in such matters to the
extent required by law.
As of January 2, 1997, The Northern Trust Co. (Chicago, IL) owned a controlling
interest (as that term is defined by the Investment Company Act of 1940, as
amended) of the Cash Reserves Portfolio, and the Morgan Stanley Group, Inc. (New
York, NY) owned a controlling interest in the Intermediate Duration Portfolio.
Custodians: The Chase Manhattan Bank, New York, NY serves as custodian for the
Portfolios. The custodian holds cash, securities and other assets as required by
the 1940 Act.
Transfer and Dividend Disbursing Agent: Chase Global Funds Services Company, a
subsidiary of The Chase Manhattan Bank, 73 Tremont Street, Boston, MA
02108-3913, serves as the Funds' Transfer Agent and dividend disbursing agent.
Reports: Shareholders receive semi-annual and annual financial statements.
Annual financial statements are audited by Price Waterhouse LLP, independent
accountants.
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MAS Funds - 44 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Litigation: The Fund is not involved in any litigation.
Closed Holidays: Currently, the weekdays on which the Fund is closed for
business are: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. In addition,
the Cash Reserves Portfolio will be closed on Martin Luther King Day, Columbus
Day and Veteran's Day.
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 45
<PAGE>
TRUSTEES AND OFFICERS
The following is a list of the Trustees and the principal executive officers of
the Fund and a brief statement of their present positions and principal
occupations during the past five years:
Thomas L. Bennett,* Chairman of the Board of Trustees; Managing Director, Morgan
Stanley; Portfolio Manager and member of the Executive Committee, Miller
Anderson & Sherrerd, LLP; Director, MAS Fund Distribution, Inc.; Director,
Morgan Stanley Universal Funds, Inc.
Thomas P. Gerrity, Trustee; Dean and Reliance Professor of Management and
Private Enterprise, Wharton School of Business, University of Pennsylvania;
Director, Digital Equipment Corporation; Director, Sun Company, Inc.; Director,
Federal National Mortgage Association; Director, Reliance Group Holdings;
Director, Melville Corporation.
Joseph P. Healey, Trustee; Headmaster, Haverford School; formerly Dean, Hobart
College; Associate Dean, William & Mary College.
Joseph J. Kearns, Trustee; Vice President and Treasurer, The J. Paul Getty
Trust; Director, Electro Rent Corporation; Trustee, Southern California Edison
Nuclear Decommissioning Trust; Director, The Ford Family Foundation.
Vincent R. McLean, Trustee; Director, Alexander and Alexander Services, Inc.,
Director, Legal and General America, Inc., Director, William Penn Life Insurance
Company of New York; formerly Executive Vice President, Chief Financial Officer,
Director and Member of the Executive Committee of Sperry Corporation (now part
of Unisys Corporation).
C. Oscar Morong, Jr., Trustee; Managing Director, Morong Capital Management;
Director, Ministers and Missionaries Benefit Board of American Baptist Churches,
The Indonesia Fund, The Landmark Funds; formerly Senior Vice President and
Investment Manager for CREF, TIAA-CREF Investment Management, Inc.
*Trustee Bennett is deemed to be an "interested person" of the Fund as that term
is defined in the Investment Company Act of 1940, as amended.
- --------------------------------------------------------------------------------
James D. Schmid, President, MAS Funds; Principal, Morgan Stanley; Head of Mutual
Funds, Miller Anderson & Sherrerd, LLP; Director, MAS Fund Distribution, Inc.;
Chairman of the Board of Directors, The Minerva Fund, Inc.; formerly Vice
President, The Chase Manhattan Bank.
Lorraine Truten, CFA, Vice President, MAS Funds; Principal, Morgan Stanley; Head
of Mutual Fund Services, Miller Anderson & Sherrerd, LLP; President, MAS Fund
Distribution, Inc.
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MAS Funds - 46 Terms in bold type are defined in the Prospectus Glossary
<PAGE>
Douglas W. Kugler, CFA, Treasurer, MAS Funds; Vice President, Morgan Stanley;
Head of Mutual Fund Administration, Miller Anderson & Sherrerd, LLP; formerly
Assistant Vice President, Provident Financial Processing Corporation.
John H. Grady, Jr., Secretary, MAS Funds; Partner, Morgan, Lewis & Bockius, LLP;
formerly Attorney, Ropes & Gray.
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Terms in bold type are defined in the Prospectus Glossary MAS Funds - 47
<PAGE>
[MAS FUNDS LOGO]
PROSPECTUS
May 14, 1997
Investment Adviser Transfer Agent:
and Administrator:
Miller Anderson & Sherrerd, LLP Chase Global Funds Services Company
One Tower Bridge 73 Tremont Street
West Conshohocken, Boston, Massachusetts
Pennsylvania 19428-2899 02108-0913
General Distribution Agent:
MAS Fund Distribution, Inc.
One Tower Bridge
P.O. Box 868
West Conshohocken,
Pennsylvania 19428-0868
-------------------------------------------------------------------------
Table of Contents
Page Page
Fund Expenses 2 General Shareholder Information
Prospectus Summary 4 Valuation of Shares 36
Financial Highlights 7 Dividends, Capital Gains
Yield and Total Return 9 Distributions and Taxes 38
Investment Suitability 10 Investment Adviser 40
Investment Limitations 12 Portfolio Management 42
Portfolio Summaries 14 Administrative Services 43
Prospectus Glossary: General Distribution Agent 43
Strategies 17 Portfolio Transactions 43
Investments 21 Other Information 44
Trustees and Officers 46
MILLER
ANDERSON
& SHERRERD, LLP -- ONE TOWER BRIDGE o WEST CONSHOHOCKEN, PA 19428
